The professional services industry is arguably going through its most critical time in the last 20 years. As it sits on its train to the future, where it jumps off will seal its fate, as each move firms take will be critical to what the industry may look like in the next 10 years.
While navigating the next stage is undoubtedly challenging, one thing is clear: action is essential. Firms that ignore the shifting landscape and refuse to adapt are putting themselves at serious risk of failure.
The industry faces a perfect storm of challenges, says Fiona Czerniawska, CEO of Source Global Research. Each sector of the professional services industry is moving at a different pace, as accounting, consulting, and legal firms all face unique challenges.
Overall, economic instability and declining profitability are converging as AI adoption accelerates across the sector, placing severe pressure on firms to adapt quickly or risk being left behind.
Head-scratching moment
The professional services industry is the ‘bedrock’ of the British economy.
Accountancy, consultancy and legal businesses contributed £285bn in economic output in 2023, accounting for 12.6 per cent of the UK’s gross value added, employing nearly 2.5m people across the country.
In the early 2020s, many professional services firms, particularly the Big Four and major law firms, performed relatively well despite facing considerable challenges during the pandemic.
However, over the last couple of years, profits and revenues have started to slow down, particularly among those with large consultancy arms, as businesses cut external spending to survive global economic instabilities.
The timing of these drops coincides with the global expansion of AI, despite the new technology having a ripple effect on all sectors. For professional services, it is its Achilles Heel.
Clients are not overly keen to pay for a management consulting firm that drafts in several rounds of junior staff for research and drafting the much-loved PowerPoint presentation, as many major businesses now have AI research capabilities embedded into their own systems.
As a result, the Big Four giants have been slashing thousands of jobs over the last couple of years, with a focus on one of their most significant costs: their graduate programmes.
“The core issue is that the legacy, people-heavy delivery model no longer scales economically,” explained James O’Dowd, CEO of Patrick Morgan.
Tom Rodenhauser, managing partner of Kennedy Intelligence, said, “We’re in an era where ‘outcomes’ will be the determining factor for success.”
As the firms return to the drawing board to rethink their strategies and demonstrate their value to clients who are spending money, while also addressing their cuts to headcount, this doesn’t solve the capital problem.
“Everyone in a leadership position in a professional services firm is facing up to the same challenges of a traditionally capital-light industry turning into one that needs significant capital to make the necessary investments in technology and people,” MHA CEO Rakesh Shaunak said.
This is where the rapid game of chess is currently unfolding in the market of next steps.
Pick one: PE injection or merger?
It seems that every other day, a new merger or private equity interest in a professional services firm, especially those with accountancy arms, is making headlines.
Last year, British private equity firm Apax bought Evelyn Partners’ accounting arm for £700m. Around the same time, Cinven completed its transaction of Grant Thornton UK.
Just last week, Mergermarket reported that accountancy firm Xeinadin will be put on sale later this month to a PE firm, with Cincen and Permira among the possible suitors.
While others have opted for mergers, including RSM UK, which announced a merger with its US sister, RSM US, last month to create a $5bn (£3.75bn) new partnership structure. Earlier this month, the UK arm of BDO revealed it was in merger talks with its Irish counterpart for a ‘landmark’ mid-market merger.
On which option firms should be looking, O’Dowd says, “There is no single best option; it depends on the firm’s maturity and strategic ambition.”
“Private equity firms are clearly targeting this industry and have significant amounts to invest; they can inject capital quickly, certainly compared to the time and complexity of deals, listing, [and more],” says Czerniawska.
While “mergers can work when scale or sector breadth is the constraint, though they often dilute culture and slow decision-making,” O’Dowd explained, however, adding “private equity is still the most practical path for the majority.”
While in the legal sector there is a flurry of Transatlantic tie-ups as firms focuses on trying to hit the ‘Global Elite’ category, with the Ashurst and Perkins Coie deal the lastest billion dollar announcement.
Listing in London – the outlier
But not all picked up the phone to private equity houses or sister firms on the other side of the world; one went in the opposite direction and asked the public markets to help with its funding.
Back in April, despite the economic headwinds and market instability, accountancy firm MHA rang the bells at the London Stock Exchange as its £271m initial public offering (IPO) went live.
“Like many firms, we had approaches from private equity, but we decided that retaining a significant element of control over our strategy and our culture was really important to us,” Shaunak told City AM.
The firm is set to reveal its first-half 2026 revenue on Thursday, but last month it said it expects its revenue for the six months to be approximately £121.3m, a 13 per cent increase. MHA, the UK arm of Baker Tilly, has a strategy to become a top 10 UK accounting and professional services business, with over £500m in revenue.
Shaunak stated, “Our flotation definitely piqued a lot of interest as well as some envy, given the positive reaction we have had from the market.”
He confirmed that he has had “several conversations” with other senior partners and external stakeholders on the ins and outs of MHA’s listing experience.
It would seem that not every firm is overly keen on private equity houses coming in and taking over. Once power is lost, it is very difficult to regain. Given the PE model, the surge of investment may appear impressive on paper now, but PE firms always have an exit plan in mind for some point in the near future.
A crystal ball
No one can predict the future, and these circumstances are anything but routine. Following the same path as before offers no guarantee of success.
Many senior leaders in these firms appear to be closely monitoring their competitors and, as a result, are making moves simply to keep pace rather than forging their own direction.
However, there are things that certainly will happen over the next five years: the sector will see more concentration through accelerated M&As, and as a result of AI-driven work, the traditional time-based model will face a “reckoning”.
As O’Dowd explained, large, established global firms will continue to handle highly complex and regulated work, but they will operate with slimmer margins and adopt more hybrid delivery models.
While a “rising class of PE-backed and founder-led firms will emerge as ‘AI-born’ challengers,” he explained, as they will use deep technology integration, nearshore/offshore resources, and differentiated pricing to move faster and deliver greater commercial value.
And, in terms of the pricing scene, especially for consultancy, the traditional model will be upended, explained Rodenhauser, as “firms embrace the changes and adapt their commercial model and focus.”
The professional services industry stands at a turning point. Firms that embrace innovation, adapt to technological disruption, and rethink traditional models will secure their future.
However, as Rodenhauser added, firms that believe this is just another cycle and that clients will revert to old patterns after the boom-bust period will become just another tombstone in the professional services graveyard.